What Leads People to Tolerate Negative Interest Rates on Their Savings?

25 Pages Posted: 14 Feb 2020

See all articles by Olivier Corneille

Olivier Corneille

Catholic University of Louvain (UCL)

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance

Rudy De Winne

UCLouvain - Louvain Finance

Emir Efendic

Catholic University of Louvain (UCL)

Aleksandar Todorovic

UCLouvain

Date Written: January 15, 2020

Abstract

Using an online experiment, we examine to what extent people are ready to bear negative interest rates (NIR hereafter) on their savings. We find some tolerance to NIR, i.e. people being willing to let money in the bank, rather than spend it, and thereby accepting to have less at some later time than now. This tolerance strongly depends on the amount of savings, time horizon, individual savings behavior, and anchoring. Specifically, the higher the amount, the lower the tolerance to NIR, which is consistent with a reverse magnitude effect. As time horizon increases, the tolerance to NIR decreases. Regular savers are more likely to tolerate NIR than non-regular savers, which is consistent with the status quo bias. We also find a higher tolerance to NIR on savings when participants are anchored towards NIR on savings first, i.e. when participants are presented first with NIR and then with positive interest rates (PIR hereafter).

Keywords: Negative interest rates; savings account

JEL Classification: G11, G21, G40, G41, G51, G53

Suggested Citation

Corneille, Olivier and D'Hondt, Catherine and De Winne, Rudy and Efendic, Emir and Todorovic, Aleksandar, What Leads People to Tolerate Negative Interest Rates on Their Savings? (January 15, 2020). Available at SSRN: https://ssrn.com/abstract=3522966 or http://dx.doi.org/10.2139/ssrn.3522966

Olivier Corneille

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance ( email )

151 Chaussée de Binche
Mons, 7000
Belgium

Rudy De Winne

UCLouvain - Louvain Finance ( email )

Belgium
+3265323334 (Phone)

Emir Efendic

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Aleksandar Todorovic (Contact Author)

UCLouvain ( email )

Chaussée de Binche, 151
Mons, 7000

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